IFI governance

Commentary

NGOs demand democracy, not tinkering at IMF

13 July 2006 | Press release

While IMF managing director Rodrigo de Rato is visiting the UK today to meet with Gordon Brown, British NGOs are demanding an end to the undemocratic system by which the Fund is governed, and its replacement with a system which would be considered democratic at the country level in the 21st century.

The currently proposed two-stage process for reform of the voting arrangements at IMF does not move the institution closer to democratic principles, and risks eroding the voting share of many developing countries. To solve the IMF’s democratic deficit and legitimacy problems, discussed in more detail in the attached note from the new economics foundation (nef), genuine reform of the institution’s power and accountability structures must occur.

The NGOs demand that the UK government step forward to propose wholesale changes at the IMF, rather than tinkering with the wholly unacceptable quota adjustments within the two-stage process that has been proposed. Their request builds on, but goes further than, the Treasury Select Committee’s conclusion that the UK needs to propose innovative solutions to the problem of voting weights because the current proposals do not address the underlying problems facing the IMF.

the NGOs call for ending the inequality that currently reigns in the IMF

In particular, the NGOs call for ending the inequality that currently reigns in the IMF, where the voting system is determined by an undemocratic mixture of economic and political power. The NGOs demand that the UK propose a genuinely democratic system, but given that developed countries will veto reforms to protect their vested interests, in the interim we demand the immediate establishment of a double majority voting system. This at least would balance the current weighted voting with a one-country, one-vote system.

In addition, we demand an end to the five most powerful countries at the IMF automatically holding their own appointed chairs on the executive board while the remaining 179 countries must group together in constituencies. The current system was designed by the colonial governments at the end of World War II and is simply illegitimate for the functioning of a multilateral institution in the 21st century.

Finally, they assert the right of citizens to information about the functioning of an organisation that can have drastic impacts on the poor and demand that any reform efforts be accompanied by a commitment by the IMF to promptly publish transcripts of board meetings and record the votes of the executive board members. This should reflect a presumption of disclosure for all information at the Fund. Transparency should also extend to the process for the selection of the leaders of the organisation, so that all positions, including the post of IMFC chairman, are opened up to nationals of any country.

Olivia McDonald, senior policy advisor at Christian Aid, called the visit by Rodrigo de Rato a farce, “Whilst the US Treasury is pushing an agenda that seeks to give powerful allies a greater piece of the decision-making pie, the UK is ineffectively pursuing piecemeal reforms that amount to tinkering around the edges rather than challenging both the illegitimacy and ineffectiveness of the Fund. Christian Aid believes the government needs a tough new strategy and should divert funding until substantial reform is seen.”

“Clearly the current system of governance at the IMF is completely unrepresentative, but the proposal to give a small increase in the shares to just a few big countries accomplishes next to nothing in terms of increasing developing country voice”, said Jesse Griffiths, Policy Advisor at ActionAid UK. “The way forward would be comprehensive root and branch reform now, not at an unspecified later date. The UK should demonstrate its sincerity in addressing the issue of developing country representation by stating that it is willing to give up its chair on the board as part of a move to ending appointed constituencies.

“With the managing director of the IMF saying that he can not even meet the most basic demand coming from African countries, for an extra seat at the board, there is little hope that anything will be accomplished this year to improve the participation of the poorest countries. The two-stage process for reform will just push the concerns of poor countries onto the back burner without any real commitment for change”, said Dr. Fletcher Tembo, senior economic justice advisor at World Vision UK.

One of the most elegant ways to immediately patch up the problems in representation at the IMF would be a system of double-majority voting, so that no decision could be rammed through by rich countries holding most of the votes, nor by an unrepresentative group of small, poor countries“, explained Jeff Powell, coordinator of the Bretton Woods Project. “This would also be much easier than trying to devise a quota formula that would satisfy all the different countries interested in IMF reform.”

“Any reform at the IMF to enhance democratic accountability must be accompanied by sweeping changes in the Fund’s approach to transparency. To start with, the Fund must implement a presumption of disclosure in its Transparency Policy. IMF decisions affect millions of people around the globe; those citizens have a right to know what the executive board members at the IMF are saying and how they are voting,” commented Jeff Oatham of the One World Trust’s Accountability Programme.

“We aren’t sure the IMF is reformable, given the veto power of the US and the vested interests of the creditor countries in the status quo. However, unless there is fundamental reform, there will be no effective or credible means of dealing with future financial and economic crises as the IMF will become increasingly irrelevant to the needs of the international financial system. This risks a meltdown, given the serious imbalances that exist (particularly in the US itself) and the increasing volatility of financial flows”, added Steve Mandel of the new economics foundation.

For more information contact:

Bretton Woods Project, 020 7561 7546

Christian Aid, 020 7523 2204

ActionAid UK, 020 7561 7614

One World Trust, 020 7766 3470

World Vision UK, 077 2537 2863 / 019 0824 4489

new economics foundation, 020 7820 6357